Innovation, endogenous overinvestment, and incentive pay

• 成果类型: Article
• 署名作者: Inderst, Roman; Klein, Manuel
• 署名单位: Goethe University Frankfurt; INSEAD Business School
• 刊物名称: RAND JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0741-6261
• DOI: 10.1111/j.0741-6261.2007.00117.x
• 发表日期: 2007
• 页码: 881-904
• 关键词: internal capital-markets; asymmetric information; corporate resources; COMPETITION; allocation

摘要

We analyze how two key managerial tasks interact: that of growing the business through creating new investment opportunities and that of providing accurate information about these opportunities in the corporate budgeting process. We show how this interaction endogenously biases managers toward overinvesting in their own projects. This bias is exacerbated if managers compete for limited resources in an internal capital market, which provides us with a novel theory of the boundaries of the firm. Finally, managers of more risky and less profitable divisions should obtain steeper incentives to facilitate efficient investment decisions.